Question on earnest money release

5 Replies

Hi Everyone, I'm having a hard time getting an earnest money deposit released. It seems like it should be a common situation, and I'm wondering if anyone else has faced something similar, and what you did (or would suggest doing)? The situation is as follows:

I provided a $1,000 EMD toward the purchase of a property several months ago. It was paid to the title company, as per the normal process.
The purchase was contingent on the sale of a different property by a certain date, and the other property did not close before that date (although it did close soon after). It was also contingent on the buyer (myself) obtaining financing at a certain interest rate, which I was unable to do. I pulled out of the transaction and provided documentation showing that the other property closed at a later date, and I provided a financing approval letter showing that I was approved for a much higher interest rate than the one stipulated in the purchase contract. The sale was also contingent on the property being vacant; the closing was scheduled for less than thirty days in the future, and the seller had not provided notice to the tenants to vacate, so that condition would not have been met (although we didn't get to the original close date to test that). 

It has been months, and the seller will not release the EMD. The Texas Real Estate Commission legal helpline has advised my realtor that even regardless of the other contingencies not being met, that we are eligible for the EMD to be returned because the transaction did not close by the given date. But I don't know how to get the seller to release it.

The title company is sending a demand letter for the seller to sign in order to release the funds, but if he chooses not to, they have advised that the funds will be go to the state within three years.

Since the contract was not fulfilled, I would think that I would be entitled to have the earnest money returned, but somehow it seems that its return is completely at the discretion of the seller. Is that correct? Has anyone faced a similar situation, and what did you do? Thanks!

@Heather H.

I know states vary however in Indiana Earnest Money is typically given back to the buyers (Situations obviously vary). Our process is to sign a “Mutual Release Agreement”. If the seller is unwilling to sign this then your real estate agents managing broker should get the process started to have EM returned to you. Like I said I am unsure of your states process for this but your real estate agent should definitely be able to help you get your EM returned.

Return of EMD is not at the discretion of the seller, at least in Virginia. EMD is stipulated in the contract and should the deal fall through, the EMD is dispersed according to your contract. You should consult an attorney who specializes in real estate transactions. You should also read your contract again to see if it stipulates collection of legal fees during that process. If you are serious about real estate investing, a good attorney is worth it's weight in gold. Now would be a good time to find one regardless of the outcome of your situation. Keep us posted!

Yes, in most jurisdictions the title will require signed agreement from both parties.  Most title companies will not release it without the signed agreement, for liability reasons....it is Not their job to be the judge of this.  If the seller won’t sign, you generally have to take them to court.  Your agent should have explained all of this to you.  In Florida we have a different t procedure available, if the EM was held by one of the brokerages instead of the title company.

Originally posted by @Wayne Brooks :

Yes, in most jurisdictions the title will require signed agreement from both parties.  Most title companies will not release it without the signed agreement, for liability reasons....it is Not their job to be the judge of this.  If the seller won’t sign, you generally have to take them to court.  Your agent should have explained all of this to you.  In Florida we have a different t procedure available, if the EM was held by one of the brokerages instead of the title company.

You can send an attorney demand letter as well. $1,000 is really low IMO.

 

In Texas you will need to have signed authorization from the seller to release the earnest money.  Your agent should have sent the TREC form to the Listing Agent as soon as you realized that you could not complete the contract.  In addition to the contract failing to close based on approved contingencies there are also time frames in place that you would have needed to meet to perform per the contract.  If you did not meet those time frames you may have been in violation of the contract and your earnest money might be in jeopardy.  Read your contract, including all of the fine print, especially everything in italics, if you still think you are in compliance send the demand letters as indicated above.  The other option is to offer them some money to sign the release, you won't get your full $1,000 but something may be better than nothing.